Week In Review March 1-4 2010 $SPY

Week In Review

 

·         Equities Update for the week – very broad-based strength this week, w/all major indices and sub-sectors trading higher.  The Dow Jones finished up 2.3%, the SP500 was up ~3.1%, and the Russell surged nearly 6%; the R2K and Nasdaq rally to fresh highs for this move (since the 3/9/09 lows, the SP is up ~68%, the Nazz is up 83%, and the R2K has climbed 93%).  The 1044 level set back on 2/5 is increasingly looking like an interim low for the tape (the sp500 is up nearly 9% from those levels in just the last couple weeks).  There were a handful of catalysts behind the strength, including: 1) resolution of the Greek sovereign crisis – the country saw very strong (3x+ oversubscribed) for an unassisted debt sale this week (i.e. it didn’t require the explicit participation of European state-controlled banks) and the issue traded higher in the secondary market (in contrast to its sale a few weeks back which sold off after pricing); 2) M&A activity continues to pick up, w/strategic deals dominating the calendar; 3) economic data points trended better this week after coming in on the light side for most of Feb.  The desk notes a degree of caution and skepticism among investors re the strength, pointing out the overextended charts on a bunch of major names/indices (the R2K has been higher for 12 of the last 14 sessions) and the tepid volumes of late.  While there doesn’t seem to be a ton of conviction behind the move, it also doesn’t seem like many are positioned to benefit from further strength (which could beget further upside). 

·         Equity Sectors – pretty much every major sector was up several % on the week.  The financials closed up ~3%, driven this week by insurance (AIG was one of the best performing stocks) and the REITs.  The banks (BKX) were “only” up ~2%, although this index is up more than 13% on a YTD basis and is one of the best performing groups in the whole market.  Technically, the BKX is bumping up right up against the upper end of a months-long trading range (the big catalyst to watch coming up will be the Citi Financial Services Conf this week).  A lot of the big capital markets/money center banks/brokers saw impressive moves this week (like GS, MS, etc).  Media and internet stocks were the best performing in the market this week, climbing ~5-6% across the board (some of the champs were IPG, which climbed 13% post earnings, CBS, MDP, NYT, etc).  Despite the internet index climbing 6% on the week, it is only flat on a YTD basis.  Tech was a mild outperformer vs. the broader sp500 this week, although on a YTD basis remains one of the weakest performing groups (down 2-3%).  Tech rallied on back of a few upside preannouncements (QCOM, ALTR, LSCC, SNDK, SWKS), a robust SIA Jan semi reading, and some sanguine presentations at the MS conf.  The SP500 Homebuilders index rose ~4% on the week and continues to move higher despite a bunch of poor housing #s (the homebuilders index is up 14% YTD and along w/financials are the best performing group in the market).  Health care stocks underperformed although still gained 2% on the week; there were a lot of headlines about Congress moving forward w/HC on reconciliation (which would be a neg. for the group), although the HMOs still managed to rally 4% (this space is most sensitive to sentiment around HC legislation).  Retail climbed more than 3% after same-store-sales for the month of Feb came in better than expectations (for the week, ANF +16%, RSH +11%, JCP +9%, URBN +8%, AMZN +8%; SPLS fell 9% after earnings).   

·         Best Performing SP500 stocks: NOVL, TIE, ANF, AKS, MEE, SNDK, AIG, CBS, TSO, IPG, MWW, VLO, LM, ATI, MIL, X, RSH, AKAM, PCAR

·         Weakest performing sp500 stocks: SPLS, FTR, HRB, CTL, IGT, SAI, PWR, S, CF, AVY, LH, PBCT, KIM, SWY, QDX, CHK, AES, HCBK, HP, WAG

·         FX update – the broader DXY was pretty much flat on the week despite some daily volatility.  The pound continues to sink lower, finishing down ~.01 this week, although bounced well off the lows reached on Tues.  Concerns around the pace of the country’s eco recovery, the state of its budget deficit, the upcoming elections (the latest polls out this week revealed Brown was running neck-and-neck w/Cameron after being down several points earlier), and some M&A-related dynamics (Mon’s insurance deal is thought to have contributed in part to the pound weakness).  London politics are one of the biggest overhangs – there is a growing fear that the UK may have to deal w/a “hung parliament”, making it difficult to make progress on the budget.  The Euro was flat on the week and continues to exhibit signs of forming a bottom.  The yen was one of the weakest major currencies this week, falling ~1.6% against the dollar, weighed down in large part by expectations for more quantitative easing on the part of the BOJ.  FX strategy update from JPMorgan’s J Normand: “The dollar’s rally this year has been unusually broad for a low-rate environment, but this move is coming to an end. Key systemic risks are fading (Greece, US slowdown), and positioning is too defensive for the macro environment. The dollar should retrace broadly within its range. Close USD longs vs Europe and commodity currencies, and stay focused on the crossrates (long CAD vs rest of commodity bloc, short GBP within Europe)” 

·         Sovereign CDS - Greek 5yr CDS are trading sub 300 as of noon on Fri, down ~80bp+ from last Fri and down >100bp from the 2/8 peak at 421.  The Greek debt sale is aiding other sovereigns (Spain 5yr CDS fell under 100bp for the first time since early Jan). 

·         Corp Credit – IG tightened and HY rallied commensurate w/the move in equities.  IG went out the week around ~85, more than 3bp tighter on the day and in ~6bp from the ~91 level of last Fri 2/26.  Back on 2/5 (when equities bottomed), IG was all the way out at 101bp (so IG has had a larger rally than stocks).  HY rallied ~2 points on the week and is up only ~4 points since 2/5 (IG and stocks have outperformed). 

·         Treasuries – 2yr yields ended flattish on the week despite selling off Fri; yields are around the technically important 0.9% level (this has been resistance since mid-Jan).   10yr yields rose ~7bp on the week to 3.68%.